Residential rents hit record highs as national vacancy rates plummet

Australia’s rental market continues to tighten as low supply levels cause national vacancy rates to dive and rents to rise across all capital cities and property types over the past three months.

CoreLogic’s Quarterly Rental Review for Q2 2022, released today, shows the national rental index increased 0.9% in the month to June and 2.9% over the June quarter, a 30 basis point increase on the three months to March.

Dwelling rents are 9.1% higher across the capital cities and up 10.8% in regional areas compared to June 2021.

CoreLogic Research Analyst and report author Kaytlin Ezzy said the recent upwards trend in rents has occurred mostly in the absence of overseas migration, with such strong rental conditions attributable to a combination of low supply and higher demand due to shrinking household sizes.

“This sustained period of strong rental growth has seen national dwellings record the highest annual growth in rental values since December 2008, when rental demand was supported by record levels of international migration,” Ms Ezzy said.

“However, the current surge in rental demand has occurred largely in the absence of overseas migration and has instead been driven by factors including low supply and a decrease in the average household size which has amplified domestic rental demand over the COVID period to date.”

Vacancy rates across national dwellings fell to a record low of 1.2%, down from 2.2% this time last year, led by falls in available rental properties across all cities except for Canberra, where vacancies lifted marginally to a relatively tight 1.1%.

Ms Ezzy said a shortfall in rental supply levels had placed considerable pressure on the market, with rental listings in June -34.0% below the country’s long-term average for this time of year.

Capital city rents bucked the trend seen since the onset of COVID, surging 3.0% for the three months to June, outpacing regional growth rates, which rose 2.7% over the same period.

In a trend seen since February, quarterly growth in unit rents outpaced the increase in house rents across both the combined capitals (up 3.5% and 2.7% respectively) and combined regional markets (up 3.2% and 2.6% respectively).

Ms Ezzy said rental demand across the medium and higher density segment has surged throughout the first half of the year, partially driven by worsening affordability in the house sector.

“Since March 2020 house rental values have increased at nearly twice the rate of unit rental values with the gap blowing out to 13.5% in December 2021,” she said.

“It's likely the gap in rental values will narrow further as rental demand continues to shift towards relatively more affordable higher density properties.”

Adelaide rents increased 4.3% for the quarter, its strongest quarterly rental growth rate since CoreLogic records commenced in 2005. This was followed by Brisbane, where rents rose 3.9% over the quarter, while Sydney and Perth both recorded quarterly rental rises of 2.9%.

Darwin (1.8%) was the only capital to record quarterly growth below 2%, while rental values across Canberra, Melbourne and Hobart rose by 2.2%, 2.3% and 2.3% respectively.

Canberra remains the country’s most expensive rental market, with the typical dwelling renting for $690 per week ahead of Sydney, which recorded a median rental value of $643 per week, and Darwin at $565 per week.

Melbourne replaced Adelaide as Australia’s most affordable rental market, with a typical property rent of $480 per week. Adelaide’s rents increased to $492 per week followed by Perth ($515 p/w), Brisbane ($547 p/w) and Hobart ($549 p/w).

National dwelling rental yields also recorded the strongest quarterly increase since April 2019, fuelled by a combination of rental growth and falling dwelling values.

Ms Ezzy said national dwelling rental yields hit 3.33% in June, 12 basis points above the record low yield of 3.21% recorded in January.

“Despite the recent rise, gross yields are still slightly below the levels recorded this time last year and below the five-year average,” she said.

CoreLogic Research Director Tim Lawless said as overseas migration picked up it’s likely rental demand will continue to increase; however, affordability constraints may eventually limit the rate of growth.

“With the exception of Darwin, the strong rental growth seen over the past year has led dwelling rents across all of the capitals to reach new record highs,” Mr Lawless said.

“Despite growing affordability concerns, rental markets are expected to remain tight for some time yet partly due to a shortage of supply following a long period of low l investment activity between 2015 and 2021, but also due to renewed rental demand as international migration recovers.

“Worsening affordability could have a negative impact on rental demand as more people try to minimize costs by maximizing occupancy rates or reforming larger households. However, this will likely be offset by additional rental demand as international migration returns to pre-COVID levels.”

CoreLogic Q2 2022 Rental Review Key Trends

• National dwelling rental values rose 0.9% in June and rose 2.9% over the June quarter.
• National dwelling vacancy rates fell to 1.2% from 2.2% this time last year.
• Capital city rents increased 3.0% over the June quarter, outpacing regional rents (2.7%) for the first time since the onset of COVID.
• All eight capital cities saw an increase in rental values over both the latest quarter and year-on-year, as did the individual house and unit markets.
• National unit rents recorded double-digit annual growth for the first time, rising 10.0% over the 12 months to June.
• Adelaide recorded the tightest rental markets across all property types, with 0.3% of Adelaide’s houses and units vacant in June.
• Adelaide also recorded the strongest rental growth across both property types over the June quarter, with unit rents rising 3.9% over the three months to June and up 4.4% for house rents over the same period.
• Canberra remains Australia’s most expensive capital city rental market with a typical house renting for $759 per week and a typical unit costing $573 per week.
• Melbourne replaced Adelaide as Australia's most affordable house rental market, with the typical house renting for $506.
• National dwelling gross rental yields increased to 3.33% for the quarter with mixed results among the capitals.